Municipal corporations in India are gasping for funds- The Hindu Editorial Analysis

Municipal corporations in India UPSC Relevance

Municipal corporations in India are local form of government in Urban Areas. Municipal corporations were established under 74^th Constitutional Amendment Act. Municipal corporations is also important for UPSC Prelims 2023 and UPSC Mains Exam (GS Paper 2- Local Government in India).

Municipal corporations in India in News

• The combined budget of all the municipal corporations in India is much smaller than that of the Central and State governments, an RBI analysis of finances of urban local bodies concludes.

Financial Status of Municipal corporations in India

• In India, the own tax revenue of municipal corporations, comprising property tax, water tax, toll tax and other local taxes, formed 31-34% of the total revenue in the FY18-FY20 period.
  • This share was low compared to many other countries and it also declined over time.
• Using budgetary data from 201 municipal corporations across India, the RBI report calculated their overall revenue receipts — consisting of own tax revenue, own non-tax revenue and transfers.
  • In 2017-18 (actuals), it was estimated to be 0.61% of the GDP and according to budget estimates of 2019-20, it increased slightly to 0.72% of the GDP.
  • This was much smaller than Brazil’s 7% and South Africa’s 6%.
• Large variations can be observed if the municipal corporations’ own tax revenue is sliced State-wise.
• The own tax revenue of municipal corporations as a share of the State’s GDP in 2017-18 crossed the 1% mark in Delhi, Gujarat, Chandigarh, Maharashtra and Chhattisgarh, while it was 0.1% or less in Karnataka, Goa, Assam and Sikkim.
• Despite such dominance, property tax collection in India was much lower compared to OECD countries due to undervaluation, and poor administration, the report argues.
• Over 70% was spent on revenue expenditures such as salaries/wages/bonus (25%), operational and maintenance charges (16.2%), pensions (7.4%), etc., while less than 30% was capital expenditure.

Challenges faced by Municipal Corporations in India

• The study titled “Report on municipal finances” reveals how municipal bodies are increasingly dependent on fund transfers from the State and the Centre, while their revenue earning capacity is limited.
• Their revenue raising powers are curtailed, the study shows. Limited funds aside, about 70% of it gets spent on salaries, pensions and administrative expenses with the rest left for capital expenditure.
• And above all, the municipal corporations don’t borrow much, leaving them gasping for funds.
• Taxes earned by municipal corporations in India are grossly inadequate to meet their expenditure needs.
• The share of own revenue (both tax and non-tax) in the total revenue of urban local bodies in India has declined, while that of government transfers has increased.
• Another major issue with the municipal corporations’ revenue raising capabilities was their dependence on property taxes.
  • In 2017-18, the property taxes formed over 40% of the municipal corporations’ own tax revenue.
• A report published in the Chennai edition of this paper on Monday further highlights the problems plaguing property tax collection.
  • Of the 13.27 lakh assesses in Chennai, only 6.94 lakh paid the property tax, while 6.33 lakh were yet to pay. Shortage of tax collectors has further impacted the revenues.
• Property tax collected in ₹ crore in FY18, FY19 and FY20 across major cities. Most of the major cities have managed to increase their property taxes in the period, though increasing urbanisation rate and rising population density may have played a role.

Conclusion

The corporations are mostly dependent on transfers with their revenue raising potential being limited. Property taxes are not efficiently collected. The generated funds are mostly spent on revenue expenditure, leaving a much smaller pie for capacity building.

Municipal Corporations FAQs

1. Under which Constitutional Amendment the Municipal Bodies in India are created?

Ans. Municipal bodies in India were established under 74^th Constitutional Amendment Act.

2. Which is the major chunk of their revenue expenditure spent by Municipal Corporations in India?

Ans. Over 70% was spent on revenue expenditures such as salaries/wages/bonus (25%), operational and maintenance charges (16.2%), pensions (7.4%), etc., while less than 30% was capital expenditure.

The Values of Local Self-Governance- The Hindu Editorial Analysis

The Values of Local Self-Governance- The Hindu Editorial Analysis

Sharing is caring!